On behalf of the Board of Directors (the "Board"), it is my pleasure to present you our annual report for the financial year ended 31 December 2016 ("FY2016"). Against the backdrop of an economic slowdown in China economy, we are delighted to report a 74.5% year-on-year ("yoy") growth in our net profit attributable to shareholders in FY2016 to RMB142.2 million, on the back of a yoy growth rate of 13.3% to RMB1,626.2 million in revenue. This was mainly attributable to an increase in revenue from the Engineering, Procurement and Construction ("EPC") Integrated Solutions segment and Environmental Equipment Manufacturing ("EEM") segment.
In FY2016, the global economy was still in the midst of restructuring and the speed of recovery of the global economy is slower than expected. China’s economy grew by 6.7% in 2016, marking the slowest growth for the past 25 years. With ongoing economic reform and restructuring, China’s economic development has entered a "New Normal" phase.
Currently, the Group has three core businesses, namely EEM, EPC Integrated Solutions and Green Investments. In 2016, while traditional business segments, EEM and EPC, continue to grow, the Group was able to increase its investments in Green Investments projects despite facing macroeconomic challenges and increasing competition from the industry. This has accelerated the performance of the Group to achieve rapid growth.
With the entry of China’s economy into a "New Normal" phase, extensive opportunities exist in the environmental protection industry. The seemingly rapid development of China’s society and economy has resulted in worsening conditions in air, water and soil pollution over the years. The pollution problem is a major ecological issue and environmental governance has taken priority for the Chinese government. Moving forward, the Chinese government will continue to develop environmental protection areas such as smog governance as well as enhance its efforts in executing the environmental protection legislations to achieve sustainable growth in the green economy.
For example, the Chinese government has stepped up its efforts in implementing a series of environmental protection policies and toughened the punishment for the violators of environmental protection laws. Following the introduction of the new Environmental Protection Law of the People’s Republic of China (新环保法), National People’s Congress (NPC) Standing Committee has introduced the Environmental Protection Tax Law of the People’s Republic of China (环境保护税法) in December 2016 which will be effective in 2018. This series of environmental protection laws will have far-reaching impact on the environmental protection industry.
Year 2017 will also be a year of evaluation for the Air Pollution Prevention Action Plan (大气污染防治行动计?), which will strengthen environmental supervision and law enforcement efforts. According to the Air Pollution Prevention Action Plan, cities above the prefecture level would face the compulsory closure of coal-fired boilers with hourly production of less than 10 tonnes of steam production capacity by 2017. At the same time, the Heat-power Cogeneration Measures (热电联产管理办法) has also specified its aim to achieve at least 60% supply of centralised steam to large and medium-sized cities in the Northern part of China through heat-power cogeneration facilities. This measure will further accelerate the elimination of small-sized coal boilers.
Capitalising on the Group’s advanced technologies in the area of heat insulation, high efficiency in transferring heat, desulfurization and waste heat recovery, the Group has further developed centralised steam system with long distance heat insulation steam pipelines, clean use of coal and near zero emission. The Group entered into the centralised steam/electricity industry with proprietary technologies to achieve a rapid and sustainable development of the Group and concurently addressing the smog issue.
Supported by rich experiences in the environmental protection industry, the Group has successfully repositioned itself as an environmental protection service provider in 2016 and will actively tap on the vast potential in China’s environmental protection industry as well as increase investments in the centralised steam/electricity and clean energy area.
Recently, the Group has successfully secured a Public-Private-Partnership (PPP) and Build-Own-Operate ("BOO") project to build cogeneration facilities in Chaonan District of Shantou City, Guangdong Province (with a total investment of approximately RMB1.6 billion for the cogeneration plant of which RMB700 million is for Phase I of cogeneration plant) and centralised heat transfer oil facilities in Changyi City, Shandong Province (with a total investment of approximately RMB338 million of which RMB250 million is for Phase I of the project). Additionally, the centralised steam and electricity projects in Gaoyang County of Hebei Province, Lianshui County of Jiangsu Province and Quanjiao County of Anhui Province are expected to commence operation in the first half of 2017. Moving forward, the Group expects to achieve higher income from the construction of the projects and look forward to generate long-term recurring income from these projects. This would have a positive impact on the Group’s results for the financial year ending 31 December 2017 ("FY2017").
Upon completion of the projects, the Group will also increase efforts in ensuring smooth, stable and safe operations at its centralised steam facilities and cogeneration projects in order to generate long-term recurring income from the projects.
EPC Integrated Solutions
In FY2016, our EPC Integrated Solutions segment recorded a revenue of RMB596.2 million (a yoy growth of 34.4%). The Group also further penetrated into the flare system market. In February 2016, the Group secured a contract worth RMB20.66 million to supply flare systems to Sinopec Tianjin Liquefied Natural Gas Co., Ltd. This is the first domestic Liquefied Natural Gas (LNG) ground flare. In September 2016, the Group secured a contract worth RMB20.68 million to supply flare systems to Shaanxi Yanchang Petroleum Yan’an Energy and Chemical Co., Ltd.’s Coal-Gas-Oil Resources Integrated Utilization Project.
On the other hand, in the waste water treatment industry, the Group was awarded a RMB22.58 million contract from China Shenhua Coal to Liquid and Chemical Co., Ltd., to provide crystallisation separation EPC services to E1 concentrated liquid crystallisation project located in Ordos City, Inner Mongolia. Securing this project marks the Group’s first zero-liquid-discharge salt separation project in China, achieving its green, economic and environmental goals.
Environmental Equipment Manufacturing
In FY2016, our EEM segment recorded a revenue of RMB1,030.0 million (a yoy growth of 3.9%). The Group also continued to secure major contracts. In March 2016, we secured a contract worth RMB97.6 million from Jiangsu Xinhua Semiconductor Materials Technology Co., Ltd., to supply reduction furnaces for semiconductor-grade polysilicon project as well as a contract worth RMB18.5 million from Sinopec Shanghai Engineering Co., Ltd., to supply piping support to Zhongtian Hechuang Erdos Coal Deep Processing Demonstration Project in Inner Mongolia Province.
The Group was awarded a US$3.95 million high-end equipment contract from Hengyi Industries (Brunei) Sdn Bhd in April 2016. In November 2016, the Group also secured contracts worth RMB98.88 million in total from Wanhua Chemical Group Co., Ltd. ("Wanhua"), China Tianchen Engineering Corporation, Xinjiang East Hope New Energy Co., Ltd., and Jiangsu Zhengdan Chemical Industry Co., Ltd. The Group has also signed a strategic cooperation agreement with Wanhua, being the supplier of the core equipment of Wanhua. This served as a testament to the Group’s strong capability.
Strong Strategic Investor
Recently, the Group issued a US$110 million convertible bond to CDH Fund V, L.P., one of the top private equity funds in China, as a potential strategic value-added investor. Looking ahead, the Group will utilise a mix of both internal and external funding to continue to increase its market share and maintain its leadership position in the industry. In addition to maintaining consistent growth in the traditional business segments, the Group will capitalise on the market opportunities brought about by the conducive environmental protection policies and strive to secure more high-quality centralised steam and cogeneration projects through Build-Own-Operate (BOO), Build-Operate-Transfer (BOT), and Transfer-Operate-Transfer (TOT) models. The Group aims to achieve higher income from the construction of more projects and look forward to generating long-term recurring income from the operation of such projects in the future.
Appreciation And Dividend
Lastly, I would like to express my gratitude to the management team and staff that have made great contributions to our Group. I wish to express my heartfelt appreciation to our customers and suppliers for their support throughout the years. In addition, we want to thank our Board members for their clear guidance and sound advice.
To reward shareholders for their unwavering support, our Board has recommended a first and final dividend of S$0.0012 per share in respect of FY2016.
Barring any unforeseen circumstances, the Directors expect the Group to grow and remain profitable for FY2017.
Guo Hong Xin